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Beer and Steel: Two American Cities on the Decline

On July 18 the city of Detroit announced they would be looking to declare bankruptcy. Once the fourth largest city in America, Detroit has fallen on rough economic times. This can be traced to the overall decline of automobile manufacturing, namely from the Big Three: General Motors (GM) , Ford (F) , and Chrysler (owned by Italian automaker Fiat).

Detroit isn’t the only American city hit hard by dwindling manufacturing. Two other former prosperous cities have been hit hard, and have been hammered by global changes in industrial production. And while they don’t get the press Detroit does, and aren’t in immediate danger of declarintg bankruptcy like Detroit, two manufacturing-based cities – St. Louis, Mo. And Cleveland, Oh. – have had their own long-standing troubles, and are also in the midst of a prolonged contraction.

But they too are struggling, albeit becuase of the decline of entirely different industries. In this case, it's not cars these cities were built on, but respectively, beer and steel.

St. Louis: Redistricting and the Sale to InBev

St. Louis has experienced quite a decline since its heyday in the 1850s. After its founding as a French fur trading post, St. Louis blossomed, largely as a result of its favorable location: the city sat at the confluence of the Missouri and Mississippi River. Like Detroit, St. Louis was, for a time, America's fourth largest city.

On August 26, 1876 the city made a decision that would prove to be disastrous. Similar to a move Baltimore made in 1851, the city of St. Louis decided to officially separate itself from the county it was in. At the time, this was seen as a way to keep tax revenues from leaving the city and going out to the more rural surrounding county. And for awhile, the move was indeed a net positive for the city.

But with the proliferation of the automobile, more and more wealthy residents across the country moved out of urban centers in favor of the more spacious surrounding county. And in the case of cities like Baltimore and St. Louis, they took their tax revenue with them, tax revenue the city wouldn’t see a dime of anymore.

Now the situation was flipped, and as people moved to the county the city of St. Louis began its long, slow decline. The population topped out at 856,796 on the 1930 census. By 1990 it was 396,685. Over half of the city had moved out.

The industries that formed the basis for St. Louis’ economy have been bought out. Aircraft manufacturer McDonnell Douglas was absorbed by Boeing (BA) . Pet food maker Purina was bought by Nestle. But perhaps the brightest spot in city manufacturing had always been the city’s rich beer brewing history, notably the world’s largest brewer, Anheuser Busch Inbev SA (BUD) . The company, formerly known as just Anheuser Busch, was headquartered in St. Louis, and was long seen as a source of pride for the continually downtrodden city. But wiht the proliferation of craft beer across America, and the emergence of upstart breweries like Fort COllins, Co.'s New Belgium, Anheuser Busch had been steadily losing market share since the 80s. And then it too was bought out.

In 2007 Brazilian-Belgian alcohol conglomerate inBev (makers of Beck’s, Heineken, and Stella Artois, among others) offered to buy out the company at $65 a share. Anheuser Busch's board of directors rejected the offer, and InBev began an aggressive campaign to oust the board and appeal directly to shareholders. Before that could occur, the two parties struck a deal. On July 13, 2008, Anheuser Busch agreed to sell out to InBev for $70 a share, or $52 billion in cash.

InBev subsequently laid off more than 1,400 employees, many of whom were based in St. Louis. In 2009 the company sold Busch Entertainment’s 10 theme parks, including Busch Gardens and Sea World, to private equity firm Blackstone Group (BX) . Some academics like Washington University's Glenn McDonald have argued that this is all part of making Anheuser Busch a "trimmer, more moder" company. Hopefully it will, for Anheuser Busch is a cornerstone of city, and if it does well, so does St. Louis.

Anheuser Busch’s stock currently sits at $88.56 a share.

Cleveland and the Disappearance of Steel

Cleveland, like St. Louis, was once a bustling hub of trade, but instead of fur and beer Cleveland specialized in metals, specifically steel. In 1884 there were 147 establishments in Cleveland dedicated to the manufacture of iron or steel, which accounted for $25.2 million a year for the city.

In 1899 one of the larger Cleveland mills, Cleveland Rolling Mill Co. was absorbed by US Steel (X) . The city began to rely more and more heavily on iron and steel to drive its economy.

In the 1970s, two events severely impacted Cleveland, and decimated the once-thriving industrial centers. First, improvements in manufacturing processes unfortunately translated into a loss of jobs for American workers. US Steel would close their last steel plant in Cleveland, Cuyahoga Works, in 1984.

Steel used to be an incredibly labor intensive product to manufacture, but that has changed as technology has progressed, and more plants close. This has contributed heavily to Cleveland’s 42% decline in manufacturing employment between 1992 and 2002. Citizens, in turn, fled. From 2000 to 2010 Cleveland lost 17 percent of its population.

The second reason manufacturing in Cleveland has declined is others countries simply caught up with American steel production, and like so much American manufacturing, were able to do it cheaper and undercut American prices. Following increased demand for steel during World War II, and the subsequent automobile boom, demand for American steel began to decline. Companies began to rely more heavily on steel imported from foreign countries.

America once absolutely dominated world production of steel. Now that title belongs to China, who produced 1547.8 million tons in 2012. While China experiences a vast economic boom, and thus an increased demand for steel, there is no need to import from America anymore.

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